Business Page – Misinformation
on the extent of debt service payments should not be repeated

Sunday, October
23rd, 2005

Introduction:

In its Focus on the 2005 Budget, Ram & McRae wrote with genuine hope that
the Government would 'correct itself' on the misinformation it (the
Government) had peddled about the extent of the debt service payments, and
desist from its constant attempt to gain political mileage from a comparison
between what it inherited from the PNC in 1992 and at various times under
its stewardship. The firm wrote 'No single issue is stated with more
conviction and sometimes more inaccuracy than the public debt i.e. those to
be serviced out of the Consolidated Fund and which do not include those of
the Bank of Guyana and para-statal entities. A publication of the Guyana
Information Agency distributed at the opening of the new CARICOM Secretariat
building stated:

"In 1992, 94% of every dollar earned went towards servicing of our
International Debt. Today that amount has been reduced to 20%."

Compare this with what the Bank of Guyana said in its 1992 Annual Report
under External Debt Servicing: "Debt servicing (principal and interest)
payments amounted to US$88.0 million in 1992 compared with US$65.5Mn. in the
previous year. The Central Government accounted for US$66.6 million of the
total debt service payment while the remainder was applicable to the Bank of
Guyana. The debt service ratio, that is total debt service (TDS) to exports
of goods and non-factor services increased from 30.5% in 1991 to 32.5% in
1992."

Not only is GINA misleading the public but it is also engaged in
ambiguity to gain from its substantive distortion. The word 'earned' used by
GINA is extremely ambiguous since it can mean the recurrent revenue only, or
both recurrent and capital revenue or indeed total export earnings.
Certainly not all of our export earnings went to service our debt nor did
94% of revenues go to pay those debts. The percentage of export earnings
that went to service 'our external debt' was 28%.

Perhaps some persons in the Government have heard this distortion
repeated so often that they have come to believe it. Others may have simply
never bothered to check whether the statement was accurate in the first
place and could be half forgiven. But no one would expect President Jagdeo
who was a political commissar in the Finance Ministry in 1992, and who
became Junior and then Finance Minister not to know the truth. Yet
disappointingly, President Jagdeo used the Private Sector Commission/ Guyana
Police Force Workshop on Crime to repeat the percentage in the GINA release.

For the President to engage in such manipulation of figures to the
private sector was not only unacceptable but ironic as well - like teaching
dogs to suck eggs. He must be aware that a large segment of the private
sector fudges their accounts all the time making the job of the GRA more
akin to playing 'Police and Thief' with the thieves overwhelming the police!
That analogy is not too dissimilar with the situation faced by the Police as
they try to confront crime in its many manifestations.

The problem the President faces is not only that of his credibility, but
that any concession to the truth would be a contradiction to what the Party
has been peddling during the anniversary celebration to mark its return to
power. Being President of a country and now Chairman of the IMF/World Bank
carries with it the image of the country and sets the benchmark for honesty
and respect.

Let the figures speak for themselves:

Despite my confidence about the reality I went back to the National
Estimates for the years 1991 to 1994 to see whether any reasonable
interpretation of the figures could support the President's assertions. The
actual figure for Central Government external debt servicing in 1992 was
US$65.5 M which converted at the then rate of exchange of US$1 = G$126 gives
G$8.253B or 46% of current revenues or 43.6% of total Government revenue. If
we were to take the figures from the National Estimates for the year 1994
which include the actual figures for 1992 and deduct the amount of the
rescheduled interest and principal, the percentage is even lower at 39.2%.

Accrual and payment are very separate concepts. Let us look at an
example. Suppose a farmer borrows $100 for 2 years at 10% per annum with
both interest and capital payable at the end of the second year. When the
farmer makes up his books at the end of year 1, he will charge interest of
$10 since to do otherwise would be to overstate his true net income for the
first year. In year 2 he will charge another $10 but will have to pay the
full $20 interest owing in addition to the capital which has become payable.
In year 1 he has accrual of $10 but no payment while in year 2 he has
accrual of $10 but payment of $20.

Assuming he runs into serious problems and asks his bank to re-schedule
his interest and or capital, he is effectively asking the banker to allow
him not to pay the amount due at that stage.

Setting the stage:

Table 14 of the Estimates for 1994 carries a new line showing 'Scheduled
Debt Service as a % of Current Revenues.' Why it was necessary to state the
percentage for scheduled debt servicing but not actual debt servicing is a
matter of speculation when there is such a big difference between scheduled
debt service and actual debt service. What it did achieve, however, was to
set the platform for a distortion of figures that have now evolved into the
massaging of numbers that serve purely propaganda purposes, crowding out the
truth from the national debate. As time passes and the distortion is
repeated, more and more people will come to believe the lies.

And as we try to correct some distortions let us look at inflation
inherited by the PPP/C. Depending on who is making the statement, the rate
of inflation ranges from 65% to 90%. Yet when we listen to Mr. Asgar Ally
the first PPP/C Finance Minister reviewing the performance of the economy in
1992 during his 1993 Budget Speech presented five months after the PNC's
departure we note: 'There was a significant drop in the inflation rate from
about 65% in 1991 to 14.2% in 1992. At the end of September (the full last
month of the Hoyte Administration), annualised inflation rate averaged 14.8%
.....' Would it not be great to return to such openness and truth?

And now for debt relief:

And for those who are led to believe that debt write-offs began with
President Jagdeo here is the extract from the 1992 Budget Speech by then
Finance Minister Carl Greenidge: 'Ever since falling output and GDP limited
our capacity to keep our external debt service payments current and the
arrears of payments made our debt burden unmanageable, the Government has
been exploring a variety of ways to handle the problem. In 1989 and 1990
these efforts yielded dramatic results with two firsts. ....... I am pleased
to inform the House that ...the USA has written off US$113.5 mn of debt owed
by Guyana; Canada C$37.2mn; the Netherlands US$10.9mn; the UK 5.45 mn.
pounds sterling and France US$0.3mn.'

Clearly there is a substantial truth deficit in the statements being
peddled by the President, the government and its propaganda arm which serve
to distort and re-write reality and to undermine confidence in the
information coming out of official circles.

That the President should have used the Workshop on Crime to perpetuate
these erroneous figures was bad enough. To do it to the Police and the
business community is almost like saying to them that it is perfectly
acceptable to manipulate numbers. That could further undermine the morality
of the country. The President may find that the truth does not always serve
his immediate purpose but its long-term benefit is immeasurable. Let us hope
that the 94% story is never repeated.